Regulators tell lenders not to be ‘overly cautious'

Regulators tell lenders not to be ‘overly cautious'

CRAIG TORRES and JOSHUA ZUMBRUN, Bloomberg News

Published 6:00 am, Sunday, February 7, 2010

U.S. banking regulators, including the Federal Reserve, urged financial companies to avoid being “overly cautious” in extending credit to small businesses following stepped- up congressional pressure for greater lending.

“Some small businesses are experiencing difficulty in obtaining or renewing credit to support their operations,” the statement issued by the Fed, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, state supervisors and other agencies said in a statement Friday.

Lawmakers including Senate Majority Leader Harry Reid, D-Nev., have said regulators haven't pushed hard enough for expanded small business loans. Before sending Fed Chairman Ben Bernanke's confirmation to a second term to a vote last month, Reid “made it clear that to merit confirmation” Bernanke must increase his efforts to expand credit for families seeking to buy homes or start small businesses.

Bernanke “has assured me he will soon outline plans for making that happen, and I eagerly await them,” Reid said.

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For the year ending in June 2009, loans to small businesses and farms slipped 1.8 percent, or $14 billion, the regulators said. Lending in this category increased “slightly” at small banks with total assets of less than $1 billion, and it declined more than 4 percent at institutions with assets greater than $100 billion, the regulators said.

Sen. Bernard Sanders, a Vermont independent who opposed Bernanke's reconfirmation, has said the Fed had done too little to break up “too big to fail” financial institutions while neglecting to use its authority to increase lending to small businesses.

The regulators' statement Friday discouraged banks from putting too much weight on cyclical factors, such as collateral values that would decline during a recession and “general inputs” such as geographic location and industry. Banks should instead focus on the creditworthiness and business plans of individual borrowers, the regulators said.

“Examiners will not discourage prudent small-business lending by financial institutions, nor will they criticize institutions for working in a prudent and constructive manner with small-business borrowers,” the statement said.